Harper says he'll allow deficit to persist 'if necessary'

Prime Minister Stephen Harper acknowledged for the first time on Friday that the federal government could run a deficit beyond five years if the recession lasts or Canada's economic recovery is weaker than forecast in the January budget.

Harper's comments came as Statistics Canada said Friday the country lost about 7,400 jobs in June as the national unemployment rate rose to 8.6 per cent.

While 47,500 full-time jobs were lost last month, roughly 40,100 part-time positions were added.

Speaking at the G8 summit in L'Aquila, Italy, Harper emphasized that Canada's employment record is improving and is much better than the carnage still being experienced in the United States.

Harper also took a shot at parliamentary budget officer Kevin Page, whose leaked report said the deficit will still be $16.7 billion in the fiscal year 2013-14, and there will be a structural deficit — one that requires tax increases or spending cuts to address — of about $12 billion.

In response to a question about his five-year budget plan, Harper was clear he would not cut any programs, even if it meant abandoning his plan to eliminate the deficit within five years.

"Let me be very clear on this: we will allow the deficit to persist if necessary," he said. "We will not, in order to meet some timetable, start raising taxes and cutting programs. That's a very dumb policy."

The prime minister said his government can't promise Canadians will not be affected by the recession.

"Clearly, we are being affected," he said. "What we have promised is that we will continue to make sure our performance as a major developed economy is superior to the others."

Canadian job losses 'gradually easing': economist

The June jobs report was not as bad as had been feared by market watchers.

Economists had a consensus forecast that the country would lose a total of 40,000 jobs in June, although some outlooks expected losses to total 50,000 jobs. Most economists also expected the unemployment rate to come in at 8.7 per cent.

However, BMO Nesbitt Burns economist Douglas Porter pointed out that private-sector employment fell by 39,300 last month.

"Today’s job report is not as friendly as the headline would suggest, but it’s also not shockingly weak, such as last week’s dire U.S. payroll news," said Porter in a commentary.

"But even if the Canadian job losses are gradually easing, it’s obvious that recession has yet to let go its steely grip on the economy, with the squeeze remaining particularly intense in manufacturing," he said.

Statistics Canada said employment was virtually unchanged in June in all provinces except Newfoundland and Labrador, where it rose.

Manufacturing loses jobs

The country added 26,000 jobs in information, culture and recreation, as well as 21,000 positions in finance, insurance, real estate and leasing. However, roughly 26,000 jobs were shed in the manufacturing sector.

The summer job market also remained weak for students last month. 

Among students aged 20 to 24, the unemployment rate hit a 12-year high of 14 per cent, and there were 43,000 fewer jobs than the same month last year.

For students 17 to 19, employment was down 50,000 between June of 2008 and 2009. Unemployment stood at 18.1 per cent, the highest since June 1998.

RBC assistant chief economist Dawn Desjardins said the latest jobs report is consistent with an economy continuing to contract in the second quarter, "although the slowing pace of decline suggests that conditions are becoming less dire."

RBC is expecting the unemployment rate to continue to drift higher, rising by 0.1 to 0.2 percentage points each month rather than the 0.3 to 0.6 percentage point jumps from earlier in the year.

"We also expect the [unemployment] rate to peak at 9.2 per cent, portending an easing in price pressures as the amount of economic slack grows," Desjardins said.